Structural correctives for subterranean inflation

fter a long hiatus of over a decade during which
the Indian economy has leapt out of the rut of the so-called Hindu rate of growth (3.5 percent per annum) and is growing at the rate of over 8 percent per year, the spectre of inflation has returned to haunt fast-track, shining India. According to the official estimate of the Reserve Bank of India, the wholesale prices index (WPI) has risen by 6.3 percent during the year past, breaching the unofficial barrier of 5 percent. Inevitably that’s not the full story. The wholesale price index as its nomenclature indicates, reflects trade-to-trade price fluctuations. The impact upon consumers of a 6.3 percent rise in the WPI is much more severe.

Therefore with elections in several states especially in Uttar Pradesh (pop. 166 million) around the corner, the UPA government has been galvanised into action. The prices of petrol and diesel have been reduced by Rs.2 per litre; the CRR (cash reserve ratio) which commercial banks are obliged to maintain with the RBI, has been raised for the sixth time this year to mop up excess liquidity from within the system, and import duties on wheat and pulses have been abolished.

However these and other measures taken by the finance ministry and the RBI while useful, are palliatives of limited value. During the past three years since it was unexpectedly awarded the largest number of seats in Parliament in the general election of 2004, the Congress party at the Centre has missed the opportunity to correct several fundamental distortions of the economy which are the consequence of post-independence India’s disastrous dalliance with Soviet-inspired socialist ideology.

The first and foremost of these distortions is the continuous (typically Soviet) neglect of the agriculture sector. The fundamental problem of the nation’s 150 million rural households is the huge variation between farm gate and retail prices of agriculture produce. Which is inevitable given that because of infrastructure deficiencies 40 percent of the country’s annual horticulture produce rots because it can’t get to markets. Moreover because of gobbledegook Marxist economics, the development of a downstream food processing industry which would prevent the massive annual spoilage of agriculture produce, has been consistently prevented by government policy. To all this add acts of commission and omission such as high taxes on petrol and diesel, poor roads, inefficient railways etc and it’s easy to appreciate that the slightest disturbance of a tenuous equilibrium will spark the subterranean fires of inflation built into post-independence India’s irrational economic development model.

The original sin of neglect of rural infrastructure which would have prevented mass distress selling of agriculture produce, has been compounded by the murder of rural education which would have given post-independence India’s farmers a half chance to effectively demand justice, equity and a fair share of the gains of economic development.

It is these structural deficiencies of the Indian economy which need to be corrected to prevent the subterranean but omnipresent fires of inflation from repeatedly surfacing to consume the poorest and most illiterate citizens of fast-track, shining India.

Constructive response to Cauvery water tribunal award

The continuous street-level agitation in Karnataka, culminating in a statewide bandh on February 12, following the unanimous award of the Cauvery Water Disputes Tribunal (estb.1990) apportioning the waters of the river Cauvery between the riparian states of Karnataka, Tamil Nadu, Kerala and the Union territory of Puducherry (aka Pondicherry), shows the otherwise peaceful, reasonable and accommodating people of Karnataka (pop. 56 million) in a poor light. The apportionment dispute primarily between Tamil Nadu and Karnataka which is a century old, has been thoroughly heard with all parties given ample time to present their case to the three member tribunal headed by Justice N.P. Singh, a former Supreme Court judge.

In this connection it is important to note that none of the demands for 740 tmcft (thousand million cubic feet) of Cauvery waters by the four riparian states has been fully accepted by the tribunal. Tamil Nadu has been allocated 419 tmcft against its demand of 562 tmcft, Karnataka 270 tmcft (465), Kerala 30 tmcft (99.8) and Pondicherry 7 tcmft (9.3). Quite obviously over the past several decades because of population growth the demand for Cauvery waters has grown while the supply has remained static, if it hasn’t diminished. Therefore to prevent water wars breaking out within the riparian states, the Cauvery Water Disputes Tribunal was constituted 17 years ago to hear the case of each state and adjudicate as fair and just an award as possible, taking into account current demand and supply considerations. Moreover aggrieved states have the option of appealing to the tribunal to reconsider its decision. Therefore this option rather than futile and destructive street-level agitations and road blockades should be availed to exhaust all legal recourse, failing which the award should be accepted with grace.

The appropriate response of responsible political parties in all the riparian states would be to initiate river water optimisation and rain water harvesting campaigns, which would make the reduced water supply go a longer way. At bottom, the primitive reaction of the state to the tribunal’s award is a reflection of the poor quality education being delivered in Karnataka’s schools and colleges. It indicates that the moral principles of sharing, caring and compassion for neighbours have not been inculcated in students by the government-dominated education system.

Therefore instead of fanning the chorus of ill-informed hysteria which has greeted the Cauvery Water Disputes Tribunal’s carefully reasoned 1,100 page award, the state’s politicians need to inform and educate the public that the interim award of the tribunal adjudicated on February 5 which ordered Karnataka to release 205 tmcft at the Karnataka-Tamil Nadu border has been diluted to 192 tmcft. This coupled with an all-party initiative to formulate a professionally-drawn plan to make the state’s water resources go a longer way is the constructive response to the tribunal’s award. Stoking divisive sub-nationalist passions and sowing dragon seeds for future water wars is hardly the intelligent way forward.